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Inside views: the intersection of trade secret law and social media privacy legislation

Eric Barton authored the following article on August 20, 2015 in Intellectual Property Watch summarizing several recent cases addressing trade secret claims involving social media issues, as well as providing some suggested takeaways for employers based on the limited information presently available.

There is no question that social media privacy issues now permeate the workplace. In an attempt to provide further guidance and regulation in this area, since April 2012, a growing number of state legislatures in the United States have passed various forms of social media privacy legislation. In fact, to date, nearly all state legislatures, as well as the United States Congress, have considered or are considering some kind of social media privacy legislation.

The precise impact that these new social media privacy laws have on existing trade secret law is still very much in its infancy. Compounding matters, the plain language of several recently enacted privacy laws directly conflicts with judicial decisions regarding “company vs. employee” ownership of social media content that may otherwise constitute protectable trade secrets, including contact lists and business relationships. Moreover, very few court decisions have yet to interpret any of the new social media privacy laws.

In light of this uncertainty, the following is a summary of several recent cases addressing trade secret claims involving social media issues, as well as some suggested takeaways for employers based on the limited information presently available.

A. Definition of a Trade Secret – Brief Summary

In the simplest terms, under the Uniform Trade Secrets Act, which is in effect in 48 states, information and data may qualify for statutory protection if the valuable information is a secret, and its owner keeps it a secret. Though there are no bright lines for whether information is a protectable trade secret, it is likely to be found protectable if it is the result of a substantial investment of time, effort, and expense, generates independent economic value for its owner, is not generally known in the relevant industry, cannot easily be accessed by legitimate means, and cannot be independently reverse engineered without significant development efforts and expense. Experience shows that in many cases, the more egregious a defendant’s theft of an alleged secret, the more likely the court will find that the stolen data qualifies as a trade secret. Not merely to punish, but also because an employee’s theft and subsequent use of the stolen data or information itself tends to show (i) the independent economic value of the stolen information, and (ii) the information was not available publicly.

Information is kept secret if its owner takes affirmative measures to prevent its unauthorized disclosure, such as, but not limited to, non-disclosure, restricted-use, and mandatory-return agreements, confidentiality stamps, limited internal distribution and access permissions, and password protection of computers. Those efforts need only be “reasonable under the circumstances,” and “absolute” secrecy is not required.

B. The New Laws’ Potential Impact on Account-Content Ownership

The new privacy laws appear to be penetrating trade-secret-ownership lawsuits between companies and their former employees regarding who owns the latters’ social media relationships (i.e. LinkedIn contacts). For example, in PhoneDog v. Noah Kravitz, No. C11-03474 MEJ, 2011 U.S. Dist. LEXIS 129229 (N.D.Cal.) (Nov. 8, 2011) and Eagle v. Morgan, No. 11-4303, 2011 WL 6739448 (E.D.Pa.) (Dec. 22, 2011), held that the company’s Twitter feeds (PhoneDog) and the employee’s LinkedIn account (Eagle) may “belong to” the employer, due to the employer’s prior investment of time and expense in developing and maintaining those accounts. Further, in Ardis Health, LLC v. Nankivell, 2011 WL 4965172 (S.D.N.Y. Oct. 19, 2011), the court held that the employer owned its employee’s account content, due to the employment agreement’s spelling that out.

With the onset of social media privacy laws, however, will employees have ammunition to argue that they own their social-media relationships, especially in states where personal andnon-personal accounts are not clearly defined? Employees in trade secrets cases may argue that the new laws imply a degree of ownership of their social media accounts, even where they use them in part to advertise their employers’ businesses.

C. Whether the New Laws Will Affect the Protective-Measure Analyses in Trade Secrets Cases

Further, some might argue that unless employers investigate their employees’ social-media activities and any related data theft, employers will lose trade secret protection for that data due to their alleged failure to use “reasonable” efforts to protect its secrecy. Recall that under the Uniform Trade Secrets Act section 1(4)(ii), trade secret owners must have employed “efforts that are reasonable under the circumstances to maintain its secrecy.” The “reasonable under the circumstances” requirement is often the key disputed issue in trade secrets litigation – the owner claiming that it used reasonable efforts; the alleged thief claiming that plaintiff was too willy-nilly in handling its so-called secrets. Under the new laws, the question presented is whether an employer which could, but does not, investigate an employee’s suspected data theft involving his social networking account, has failed to use “reasonable efforts” to protect the data’s secrecy.

On the one hand, information that falls into the public domain, or becomes generally known to the relevant industry, usually loses its trade secret status. See, e.g. Newark Morning Ledger Co. v. New Jersey Sports & Exposition Authority, 31 A.3d 623, 641 (N.J. App. 2011) (trade secrets’ “only value consists in their being kept private…if they are disclosed or revealed, they are destroyed”). Similarly, information whose owner intentionally discloses it without imposing a confidentiality obligation on the recipient is at high risk of losing any secrecy protection. Seng-Tiong Ho v. Taflove, 648 F.3d 489, 504 (7th Cir. 2011) (plaintiff’s publishing its alleged secrets in trade journals destroyed any trade secret status that information had). An employee’s posting confidential employer data on his or her social networking account would pose a significant risk that the data would lose its trade secret protection, especially if the employer was authorized by the applicable privacy law to demand access to the employee’s account to investigate, but for whatever reason did not or had policies which did not prohibit such social media activities.

On the other hand, “absolute” secrecy is not required to maintain trade secrecy, but only reasonable efforts to maintain confidentiality. See, e.g., Avidair Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d 966, 974 (8th Cir. 2011) (efforts to maintain secrecy “need not be overly extravagant, and absolute secrecy is not required”). Indeed, two relevant features of many privacy laws are (i) employer immunity for not investigating suspected misconduct (seeMichigan, Utah), and (ii) no duty to monitor employee account activity. (Id.). Employers faced with a waiver argument may cite these statutory provisions to counter the argument that they were required to investigate reports of employee-account-related data theft, lest they lose statutory protection for that data.

D. Takeaways

Issues related to social media privacy in the workplace are not going away, and we expect to see more litigation and legislation to define acceptable practices in this area. As detailed above, one’s ability to differentiate between personal and business ownership of information is often extremely difficult. In light of this uncertainty, employers should at a minimum consider doing the following:

Determine whether your company has employees in any of the states that have adopted or are planning to adopt social media privacy laws.

Review existing policies and agreements regarding employees’ use of social media and computer resources for business purposes to ensure that those policies and agreements clearly define ownership and access rights for such accounts.

Social media policies should be narrowly tailored and provide examples of protected confidential information.

Consider whether to block access to social networking sites not used for business purposes, as well as to other categories of potentially problematic Internet web sites that might be protected under some states’ statutes, such as file-sharing and internet-mail sites.

Provide recurring training on the company’s social media policy confidentiality policies and agreements as well as evaluate the company’s computer network in order to reduce the opportunities for incidents of employee misconduct and network security breaches. Remind employees that the same confidentiality policies and agreements that apply in the workplace also apply in their social media activities.

Evaluate whether the benefits of a bring your own device policy outweighs the risks to data security confidentiality, and employee privacy.